On June 9, President Obama announced numerous initiatives related to federal student loans and signed a presidential memorandum directing the Education and Treasury Departments to execute certain of those initiatives. The central directive instructs the Education Department to initiate a rulemaking that will allow students who borrowed before October 2007 or who have not borrowed since October 2011 to cap their payments at 10 percent of their monthly incomes. The Education Department aims to finalize the program by December 2015. In addition, the President announced that, among other things, (i) the Education Department will renegotiate its contracts with federal loan servicers to alter financial incentives “to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume”; (ii) the Education Department will proactively apply SCRA protections by reducing interest rates automatically for eligible servicemembers and will also provide additional guidance to Federal Family Education Loan program servicers to provide for a similar streamlined process; (iii) Treasury and the Education Department will work with tax preparation companies to communicate information about federal student loan repayment options; and (iv) the Education Department will expand other existing efforts to identify borrowers who may be struggling to repay and provide them with information about repayment options. The President also called on Congress to pass federal student loan refinance legislation championed by Senator Elizabeth Warren (D-MA). On June 11, the Senate failed to advance that bill, which was designed to allow federal loan borrowers to reat rates set last year by the Bipartisan Student Loan Certainty Act, and allow private loan borrowers to refinance loans into the federal program at the same rates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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